United States

Upgrades charged to power stations

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Changes in how new transmission lines are paid for in the Midwest threaten to severely suppress wind power development in one of the US's most promising wind markets. New power stations - including wind farms - that would require transmission upgrades in the Midwest Independent System Operator (Miso) market to operate may soon be required to pay the full cost for those lines and related system upgrades.

Miso coordinates a wholesale power market through most parts of 13 US states in the Midwest and one Canadian province. Under its current rules, the cost of building new lines is shared evenly between generators that require a transmission upgrade and the regional utilities. But the utilities complained that the longer lines needed to connect strong but distant wind resources for export would result in an excessively high cost burden on the utilities and their ratepayers.

"They do have a legitimate argument that their ratepayers are having to share a disproportionate cost," says Joel Link, former head of development in the Midwest for Invenergy and now with Element Power. "The problem is that they've gone completely to the other side of the argument and want the generator to pay 100% of interconnection. It's going to be a huge barrier to entry, will drive up the cost to interconnect and halt a lot of development in those states."

Change the formula

Miso proposed the changes after two transmission-owning utilities, Otter Tail Power and Montana Dakota Utilities (MDU), threatened to leave Miso unless the cost allocation formula is changed. New wind power proposals, as much as 2 GW, in North and South Dakota would trigger transmission upgrades, requiring Otter Tail to upgrade its transmission facilities to connect the generation. Yet, with most of the power destined for out-of-state export, little or none of the power would serve the utility's local customers through Otter Tail ownership or through power contracts.

"The current Miso model of 50/50 sharing would hit Otter Tail customers unreasonably hard," says an Otter Tail executive, who asked to remain anonymous. "Paying 50% of the cost of transmission upgrades, our customers will receive zero benefit from that." MDU has similar concerns, he says.

As legally required, Miso has filed its proposed changes with the Federal Energy Regulatory Commission (Ferc), calling for the costs of lines rated 345 kV and below to be paid for by the generators whose projects trigger the upgrades. Large lines above 345 kV could see generators still paying up to 90%.

The proposals are under review at Ferc, which typically pushes for power policies that encourage competition between generators. Its new chairman, Jon Wellinghoff, champions expanding renewable energy and cost-sharing mechanisms that grow the grid to manage renewable energy resources.

"From a wind perspective, it does seem like Miso is headed in the wrong direction," says Frank Bristol, director of transmission at Acciona, a Spanish developer and turbine manufacturer. The company operates a 180 MW wind project in Miso and hopes for more in the future. It has around 1 GW in the grid interconnection study process.

By its nature and design, an independent system operator like Miso was created with the intention of fostering principles of open access and generator autonomy from utility interests. Years ago, Ferc encouraged the structure and has since seen the model replicated in much of the US. But if the utilities can strongarm Miso, it could be a slippery slope that erodes the very purpose of an independent grid operator, says Bristol.

"I hope Ferc says, 'we allowed you to go to a 50/50 split on cost, we allowed you to change your interconnection queue process, now you've gone too far'," Bristol says. "They may say that or they may say, 'sure, go ahead'. Maybe the process has to break before if can be fixed." Ferc is consulting the industry before making a judgement later this year.